Launching New EV Models And Global Expansion Will Drive Future Success With LEAP 35 Technology

Key Takeaways

• Global market expansion and new sales channels are expected to enhance international revenue and sales volumes significantly.
  
• Proprietary technology advancements and digital service improvements aim to boost competitive advantages, cost efficiency, and customer satisfaction.
  
• Ongoing profitability challenges, competitive EV market pressures, and high R&D costs could strain cash flow and margins, while international expansion poses execution and reliance risks.

Catalysts

Engages in the research and development, production, and sale of new energy vehicles (EVs) in Mainland China and internationally.

• The anticipated global market expansion, particularly through the joint venture with Stellantis and the rapid increase in overseas sales channels, is expected to significantly boost revenue from international markets.
  
• Launching new models within the B Series, C Series, and future D platform is projected to drive sales volumes, enhancing total revenue and profitability through product differentiation and expanded market offerings.
  
• Advancements in proprietary electric vehicle technology and architectures, such as LEAP 3.5, are likely to improve cost efficiency and economies of scale, positively impacting net margins and supporting increased earnings.
  
• Planned technology upgrades, including autonomous driving features and in-house R&D, aim to bolster product appeal and competitive advantages, potentially increasing sales and contributing to higher revenue figures.
  
• The focus on digitalizing and optimizing sales and after-sales services promises to enhance customer satisfaction and operational efficiency, potentially improving net margins and fostering customer retention and growth.

Zhejiang Leapmotor Technology Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Zhejiang Leapmotor Technology's revenue will grow by 50.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from -8.8% today to 4.3% in 3 years time.
• Analysts expect earnings to reach CN¥4.7 billion (and earnings per share of CN¥3.47) by about March 2028, up from CN¥-2.8 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CN¥6.5 billion in earnings, and the most bearish expecting CN¥3.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.3x on those 2028 earnings, up from -21.9x today. This future PE is greater than the current PE for the HK Auto industry at 12.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.08%, as per the Simply Wall St company report.

Zhejiang Leapmotor Technology Future Earnings Per Share Growth

Risks

• The company reported a net loss of RMB 2.82 billion in 2024 despite improving its gross profit margin, indicating ongoing challenges in achieving overall profitability, which could impact net earnings.
  
• Significant competition in the EV market and the company's reliance on expanding in international markets, such as Europe and emerging regions, pose execution risks that could affect revenue if the strategy doesn't succeed.
  
• While the company aims to break even in its international operations, the focus on expanding sales channels and brand recognition could lead to increased short-term expenses, affecting net margins.
  
• Leapmotor’s high expenditure on R&D and autonomous driving technology, though essential for future competitiveness, could strain cash flow and profitability if sales targets are not met.
  
• The company’s dependency on partnerships, such as with Stellantis for international expansion, may involve uncertainties or reliance risks that could impact revenue streams if collaborations do not yield the expected results.

Valuation

• The analysts have a consensus price target of HK$53.969 for Zhejiang Leapmotor Technology based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$74.2, and the most bearish reporting a price target of just HK$25.08.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥108.7 billion, earnings will come to CN¥4.7 billion, and it would be trading on a PE ratio of 20.3x, assuming you use a discount rate of 12.1%.
• Given the current share price of HK$49.7, the analyst price target of HK$53.97 is 7.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.